Kimco wins rights to Wards leases

N.Y.-based REIT buys them at auction in bankruptcy court

March 01, 2001|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

A New York-based real estate investment trust has won the right to lease or sell leases for Montgomery Ward's 250 department stores, which will likely be taken over by some of the nation's biggest retail chains.

Wards, which filed for Chapter 11 bankruptcy Dec. 28, is going out of business and expects to close all stores in 30 states by spring.

Kimco Realty Corp., the nation's largest owner of neighborhood shopping centers, won the right to market all Wards' real estate at an auction Tuesday in U.S. Bankruptcy Court in Delaware, Wards officials said yesterday.

Kimco, based in New Hyde Park, N.Y., was considered the lead bidder. Before the auction, Wards and its unsecured creditors had approved an agreement in which Kimco will pay Wards $30 million up front, then another $30 million within 60 days of closing, said Charles H. Knittle, a spokesman for the Chicago-based retailer. Wards will get the first $400 million in proceeds from selling or leasing the stores and 10 distribution centers and will split proceeds beyond that with Kimco according to various formulas, Knittle said.

A spokesman for Kimco did not return phone calls.

Kimco has apparently lined up deals with retailers such as Target Corp., Kohl's, May Department Stores Co. and Federated Department Stores Inc. to take over the sites - many at desirable locations, said David M. Fick, managing director of Legg Mason Wood Walker in Baltimore. Fick said he believes Kimco already has deals for at least half the Wards stores. Wards has 16 stores in Maryland.

"Good real estate overcomes bad retail concepts everyday," Fick said. "You're seeing that in the Wards situation. Retail concepts come and go, and Wards was one that had been dying for many years. Most developers had hoped to get the real estate back."

Even though Kimco, and not the individual shopping center landlords, will be in control of the leases, "in no case will mall owners lose, because they will be getting a better tenant," Fick said.

Fick estimated that the average rents of the Wards stores ranged from $2 to $4 per square foot and could be re-leased in the $6- to $12-per-square-foot range.

The Wards acquisition is similar to Kimco's purchase of "asset designation rights" for 63 former Hechinger and Builders Square home improvement stores in bankruptcy auctions in late 1999.

"Kimco has a history and proven ability to anticipate and take advantage of difficult turnaround opportunities in the marketplace before its competition," Fick said. "Kimco is famous for anticipating these deals and then going out and cutting deals with retailers."

Retailers looking to expand, such as Kohl's and May, which operates Hecht's and Lord & Taylor, would be likely candidates for some mall sites, he said.